Published on 01 Dec 14
by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE
Division 7A (which is about private company distributions) of Pt III of the Income Tax Assessment Act 1936 has recently been the subject of a post-implementation review by the Board of Taxation. So far, the Board has released two discussion papers for consultation, the second of which outlines five proposed reforms to improve the operation of Div 7A. Those five proposed reforms consist of a unified set of rules based on the principle of transfers of value, a better targeted framework for calculating a company’s profits, a simpler, more flexible and better targeted system of complying loans, greater flexibility for trusts that reinvest unpaid present entitlements as working capital, and a self-correcting mechanism.
This article examines selected issues considered in the second discussion paper and proposes some alternative options. The authors believe that these reforms would significantly improve the operation of Div 7A and assist both taxpayers and advisers alike.